When seeking to remove a company from the companies register under the short form removal process, Inland Revenue typically expects that all obligations are settled before a letter of no objection will be issued. However, recent changes to Inland Revenue’s process – specifically, the introduction of the new form IR315A – raises practical questions about the timing of this request and the treatment of shareholder loans.

The new form requires confirmation that when a request is made for a letter of no objection all company loans made to shareholders have been repaid in full. Depending on how far required actions have progressed, this question on the form may cause confusion. The matter was raised by CA ANZ with Inland Revenue following member feedback and was discussed at the National Tax Liaison Group meeting in March.

The issue

Broadly, the concerns arise from these two questions in form IR315A which must be answered either ‘yes’ or ‘no’:

• All loans owed by company shareholders have been repaid in full.
• If the answer to the previous question is “no,” the amount not repaid has been treated as a dividend by the company and the shareholders.

The second question is particularly problematic. This is because:

• As a shareholder loan is not inherently a dividend, the second question is unlikely to be answered “yes”.
• If, when distributing the company’s surplus assets, a dividend is declared and applied to repay a shareholder loan, the loan balance would be nil, meaning the second question would be irrelevant or unable to be answered as “yes” or “no”.

The publication of form IR315A has highlighted differing practices when requesting a letter of no objection. Some may make the request at the commencement of the removal process, while others do so only once all balances have been cleared (i.e. the company has a nil balance sheet).

The purpose

From discussion with Inland Revenue, we understand form IR315A is a business tax simplification measure. It is hoped requiring the use of the form will clarify expectations and achieve consistency.

When requesting a letter of no objection Inland Revenue expects that:

• all steps have been completed
• shareholder loan positions are resolved
• balance sheets are nil

Practical tips

Given the purpose outlined above, practitioners may wish to:

• consider carefully the timing of filing the IR315A
• ensure shareholder loan positions are clearly resolved before submission
• consider how any remaining balances are treated for tax purposes

As the form embeds in practice, further clarification may be needed to ensure the IR315A achieves its objectives and align with established tax principles.